Loren Steffy: The myths of untapped oil

As we head into the presidential election next year, Democrats and Republicans are offering voters deceptively simple solutions to America’s complicated energy conundrum.

Democrats generally favor reducing oil consumption and allowing renewable fuels to make up the difference, and many Republicans argue that we have all the oil we need, if only we would decide to drill for it.

Renewables, of course, aren’t yet reliable or economical enough to replace oil in a meaningful way, although developing them should be central to America’s energy strategy.

But equally misleading is the idea that the U.S. can become independent or even significantly reduce imports by tapping overlooked domestic reserves. The sentiment was voiced at a recent Republican candidate debate by Newt Gingrich, who said “if we were serious, we would open up enough oil fields in the next year that the price of oil worldwide would collapse.”

The comment drew wide applause, and why not? After all, we’d like to believe our energy problems are relatively easy to solve – something that can be addressed with our can-do spirit and less government regulation.

But to bring about the sort of price collapse to which Gingrich referred, the U.S. would have to unleash an impossible gusher of newfound domestic production. In fact, we’d have to find more than six domestic oil fields the size of Alaska’s Prudhoe Bay in one year, according to calculation by Art Berman, an independent petroleum geologist in Sugar Land. Prudhoe Bay took 11 years to reach full production.

Production sinking

Keep in mind that domestic oil production has declined steadily since 1970, despite oil prices rising from the equivalent of $3 a barrel to about $100. Historically, once a production decline begins, the trend doesn’t reverse itself, regardless of price.

Myths like Gingrich’s are fueled by the notion that recent strides in technology, such as hydraulic fracturing, enables us to tap reserves that were previously unrecoverable. About five years ago, the U.S. Department of Energy found that about 1.3 trillion barrels of oil remain undeveloped in the U.S. The problem: less than 2 percent is actually recoverable.

It takes energy to make energy, after all. These days, everyone’s talking about Canadian oil sands and oil from formations in North Dakota’s Bakken shale and the Eagle Ford shale in South Texas. But less than 15 years ago, oil prices weren’t high enough and the technology wasn’t efficient enough to make extracting the oil economical.

At the moment, U.S. production has increased slightly from shale drilling, but as the economy improves and demand returns, it won’t spark the price collapse that Gingrich described. We’re simply paying more for marginal gain.

In recent years, of course, shale drilling has boosted domestic natural gas production, which sparked a price collapse of more than 35 percent since June. The result: If prices remain at those levels, many shale gas projects will become too expensive to drill. Some already are.

In other words, when prices are high enough, marginal sources will augment our domestic supply, but we won’t be able to boost oil production – whether from shale or other sources such as new offshore drilling areas – to replace the 8 million barrels of oil we import daily, and it certainly won’t create a global price collapse.

The idea of easy oil, of domestic production as a force of will, is as dangerous as the notion of renewables as a panacea.

In both cases, voters are being misled, deceived about the ugly truth: energy prices are going to rise. If we think that green dreams or unfettered drilling alone can save us, we risk waiting until it’s too late.

Big message

The message that Americans need to hear contains elements of both parties’ message. We need to actively conserve and boost energy efficiency, develop renewables and promote domestic production of conventional fuels.

If we adopted policies to encourage that, we wouldn’t trigger a global oil price collapse and we wouldn’t become energy independent, but we might prevent ourselves from being held hostage by rising prices and dwindling available supply.

Loren Steffy is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy. Follow him on his Facebook fan page and on Twitter at twitter.com/lsteffy.